Kicking Dish In The Pants

It was fun while it lasted. Some cable operators did their best to exploit a brief window of opportunity last week, when direct-broadcast satellite operator Dish Network temporarily lost 15 CBS stations and 10 cable channels, all owned by Viacom Inc.

MSOs stepped up dish buy-back plans and slammed together new anti-Dish ads, particularly in Los Angeles, after a court-ordered extension of a lapsed deal between Viacom and Dish expired and the channels went dark.

Afterward, the cable operators said they hoped they made an impression on consumers that would last much longer than the 46-hour Viacom outage on Dish, which ended early Thursday morning (1:30 a.m. Eastern).

As soon as the channels came off, the Los Angeles-area cable cooperative — which includes Time Warner Cable, Adelphia Communications and Comcast Cable — tagged generic "get cable" radio spots with messages pegged to the dispute, urging consumers to call a toll-free phone number to subscribe to cable.

Sue Otto, regional marketing communications manager for Adelphia, said the ads were used to sponsor traffic reports and sounded like news stories. One said, "If you like to laugh, you won't like this news — if you have Dish, you aren't getting Comedy Central."

Adelphia also adapted a Web site (www.adelphiasocal.com) to direct angry Dish customers to a $400 dish buy-back offer.

The ads went back to regular scripts after Dish parent EchoStar Communications Corp. and Viacom settled.

But Adelphia's Paul Jacobson said he was hoping a value message would resonate.

"We were able to show consumers that there is a legitimate and better alternative to satellite," Jacobson, the MSO's corporate communications vice president, said. "It allowed a lot of satellite consumers to look at how things have changed in the cable environment and get them to think about coming back to cable when their contract with Dish expires."

Charter Communications Inc. will continue to run ads across the country featuring Dan Aykroyd and the Hummer-driving "Dish Intervention Team." They were running before the Viacom-Dish flap, but Charter stepped up the frequency to take advantage of the dispute, senior vice president of communications David Andersen said.

BREAK OUT HUMMER

During the blackout, Charter got out the Hummer and sent it out on some cable installations, publicizing that all the Viacom channels were available on cable.

Charter executives said they had been trying to get Aykroyd to do some install stops, too, had the blackout continued.

"We will continue with the Aykroyd spots," Andersen said.

The consensus after the dispute ended — and Viacom signals were restored — was that EchoStar had caved, agreeing to the same terms Viacom offered before CBS and the cable channels were removed.

EchoStar chairman and CEO Charlie Ergen — who's been lobbying for legal changes that would give him more flexibility in retransmitting broadcast-network signals into local markets across the country — might have been willing to suffer some customer defections in order to score longer-term points in Washington. (One analyst guessed Dish might have lost 200,000 subscribers had the dispute lasted a month or more.)

"Ergen may be using the Viacom situation as an opportunistic 'bullhorn' to raise his issues before Congress, in the hope that by shining a spotlight on broadcasters' bad behavior — especially related to retransmission consent — will weaken [broadcasters' ] lobbying position, and thereby strengthen his own," Sanford C. Bernstein analyst Craig Moffett opined in a research report last week.

CABLE ROSTER

At about 1:30 a.m. Eastern last Thursday (March 11), Viacom's 15 owned-and-operated CBS stations were back in front of approximately 1.6 million subscribers in 16 markets.

In addition to price increases, Viacom extended the term of carriage for CBS HD (East and West) channels, as well as for Spike TV, CMT: Country Music Television and TV Land. (The last three cable networks, whose contracts hadn't expired, remained on Dish through the period.)

NICKTOONS ADDED

In a new launch, Dish agreed to put Nicktoons in its America's Top 180 package this spring — a contract point Ergen had particularly opposed.

The two companies the dropped litigation against each other.

For EchoStar, that meant withdrawing an antitrust lawsuit that had accused Viacom of improperly tying retransmission of CBS broadcast signals to carriage of Viacom-owned cable networks.

For Viacom, it meant scuttling a case over EchoStar's alleged illegal sale of CBS signals to subscribers that were ineligible to receive them.

EchoStar hasn't settled with others in the latter case, including Fox Broadcasting Co. and independent affiliates of ABC, NBC, CBS and Fox.

EchoStar said it would rebate $1 per month to customers who lost the cable channels and another $1 for customers who lost the CBS stations.

Deal terms weren't disclosed. But MTV Networks president Mark Rosenthal stuck to Viacom's assessment that EchoStar would be paying the equivalent of an extra 6 cents per customer — a sum a Merrill Lynch analyst report equated to a 7% to 8% annual increase in affiliate fees — over the contract period.

"We now have a long-term deal with EchoStar. A lot was said in the negotiation that we'll be able to put behind us and we'll be able to move on," Rosenthal said last Thursday.

"We're very happy for our customers that we're back on the air."

Merrill Lynch's Jessica Reif Cohen called the outcome a "royal flush for Viacom," and Ergen conceded during an earnings call last Thursday (Dish added a net 340,000 customers in the fourth quarter) that he didn't get the deal he wanted.

Ergen said he "hated" to add Nicktoons, a 24-hour animated channel, and might have to remove other animated channels to make room for the service.

"We didn't want to add the Nicktoons channel, we didn't want to add another cartoon channel, we have several of them up there," he said on the analyst call. "But that was very important to Viacom.

"In all the deals they've done on renewals — the last three or four with people that are bigger than us — they got people to concede to launch that channel. So why should we be any different?"

After the networks were dropped, Viacom placed ads in 33 national and local newspapers.

Using Nickelodeon's popular SpongeBob Square Pants, the ad encouraged viewers to call local cable operators or competing satellite service DirecTV Inc. and dump EchoStar.

Executives from both EchoStar and Viacom reported being inundated by calls from viewers upset over the loss of CBS shows and of top-rated networks like Nickelodeon and MTV.

Political pressure came quickly. Last Wednesday, Washington lawmakers urged a quick resolution to prevent a wave of calls from angry constituents.

"This dispute is hurting consumers in my district and across the United States," said Rep. John Dingell (D-Mich.), the most senior Democrat on the Energy and Commerce Committee, which regulates both broadcasting and satellite.

A big concern was that voters would lose access to CBS coverage of the National Collegiate Athletic Association men's basketball tournament, referred to by many as "March Madness."

"March Madness is going to turn into March Anger if EchoStar and Viacom don't sit down at the bargaining table and get this worked out," said Rep. Mike Doyle (R-Pa.)

Viacom and EchoStar executives, testifying before the House Subcommittee on Telecommunications and the Internet, were able to report they were close to an agreement — statements which turned out to be true within 12 hours.

ANTITRUST WEDGE

EchoStar had accused Viacom of "extorting" unwanted digital nets onto Dish Network in return for carriage of its CBS stations.

Ergen later said EchoStar was compelled to file the antitrust lawsuit in order to have CBS signals on during the Feb. 1 Super Bowl.

"We got off on the wrong foot in the negotiation because they threatened to withhold the Super Bowl," Ergen said on the call last Thursday. "The negotiation was probably a little more tense than it should have been going into that, because there were some strong-arm tactics, in our opinion, that were used."

Ergen predicted more retransmission-consent skirmishes would occur in the future, and pointed to contract negotiations with News Corp.'s for Fox stations later this year as another potential battleground.

"This is one of many battles that will probably have to be fought to make sure that we're being treated fairly," Ergen said. "We're bringing in more net new subscribers to programmers like Viacom than cable industry combined. The growth in new subscriptions is coming from the satellite industry."